Naira records first loss as external reserves decline by 0.68%

On Tuesday, the naira experienced its first loss at the official foreign exchange (FX) market after four consecutive trading days of gains. This came after the Central Bank of Nigeria (CBN) began its retail dollar sales to banks.

After trading on Tuesday, the naira lost 0.70 percent as the dollar was quoted at N1,582.09 compared to N1,570.99 quoted on Monday at the Nigerian Autonomous Foreign Exchange Market, (NAFEM), data from the FMDQ indicated.

The local currency appreciated by N2 per dollar to close at N1,598/$ on Tuesday as against N1,600 closed on Monday on the parallel market, also known as the black market.

Dollar supplied by willing buyers and willing sellers dropped by 18.26 percent to $201.43 million on Tuesday from $246.44 million recorded on Monday at the NAFEM.

Nigeria’s external reserves, which gives the CBN the firepower to defend the naira declined by 0.68 percent to $36.620 billion as of August 12, 2024 from $36.872 billion recorded on August 7, 2024, data from the CBN indicated.

The external reserves increased to US$37.88 billion as of July 15, 2024, from US$34.76 billion as of end-June 2024, a development that will further sustain the current exchange rate stability and narrowed premium across market segments, with positive implications for domestic prices, Bala Moh’d Bello, member of the Monetary Policy Committee (MPC), in his personal statement at the last meeting in July 2024.

He said it is essential to maintain exchange rate stability to ensure stable prices, given the significant impact of exchange rate pass-through on import prices and inflation.

“The central bank has made substantial efforts to stabilise the foreign exchange market, which has led to increased foreign portfolio investment inflow and a reduction in exchange rate volatility. In addition to current measures being taken by the Bank, medium and long-term strategies are being explored to ensure that the exchange rate settles at a market determined equilibrium level,” he said.

Olayemi Cardoso, governor of the CBN said particular attention needs to be paid to developments in the foreign exchange markets and the outlook for the exchange rate in the short to medium term, given its major impact on inflation.

According to him, the recently observed relative stability of the exchange rate is owed to the increased confidence of the market in the actions of the MPC to deliver the objective of bringing inflation within target. “This fragile equilibrium must, however, be carefully managed in order not to jeopardise the achievements so far in attracting more capital flows to help sustain the recent stability in the market,” he said.

Lydia Shehu Jafiya, member of the MPC, said in her personal statement that foreign exchange inflows improved by 38.26 per cent (month-on-month), between April and May 2024, driven by increased receipts of oil and non-oil proceeds. She noted that gross external reserve position at the end of June 2024 could provide 7.59 months cover of import of goods and services and 10.88 months cover of import of goods. The foreign exchange market also witnessed relative stability and convergence of rates.

“The foreign exchange market has witnessed relative stability in the recent past, as indicated by the narrowing spread in different segments of the market, driven by the efficiency of the market mechanism in foreign exchange allocation and price determination,” she added.

Mustapha Akinkunmi, a member pf the MPC said the naira depreciated to N1,605.50 on July 19, 2024, from N1,525.00 on June 28, 2024. Gross external reserve stood at US$34.88 billion as of June 2024, projected to be about US$32.93 billion at the end of May 2024. This reserve could cover imports for about 11 months of goods and about 8 months of goods and services.